“push-me/pull-you”

1. “push-me/pull-you” … FOR CLEVER RETAIL MODELS in a challenging and changing world Vadim Khetsuriani Retail Insights Director June 2013

2. Agenda • Clever retailers • The future of global retail • The growth forecast

4. C.L.E.V.E.R – Retailers need to address each component Source: Kantar Retail Retailers are facing a massive period of uncertainty & shopper volatility, forcing them to re-evaluate: Convenience (Proximity) Loyalty Experience Value Execution ROI

5. Convenience is a “Mix” of Speed & Ease:The Inconvenient Truth: The Middle Is No-Mans Land Speed-Based Convenience Ease-Based Convenience “An Inconvenient Truth” Getting To The Store Shopping Destination Easy Access Walking In The Store Quick In /Out One-Stop Shop Merchandise Mix At The Shelf Stock Up Impulse Product Usage Planned Immediate All four factors are present at all times – different retailers balance them differently; the mix defines the store model Source: Kantar Retail analysis

6. Evolution of convenience retailing - Typical strategies adopted… Source: Kantar Retail STAGE 1 Race for space STAGE 2 Race for footfalls (traffic) STAGE 3 Race for bigger spend, localization and optimization

7. Race for space…Easy Access • Smaller lower volume distribution points will represent high growth Auchan’s “A 2 Pas”, France Carrefour “City Cafe”, France AH “To Go” Metro “Odido”, Poland Casino “Chez Jean”, France Sainsbury “Fresh Kitchen”, UK ICA “To Go”, Sweden Source: Kantar Retail analysis

8. Race for footfalls…Easy Access + One Stop Shop Source: Kantar Retail 200 Coop stores in the UK have Amazon lockers Fnac has a large store network in France, which is being used to collect products ordered online.

9. Race for footfalls in Russia – where will some categories shift from traditional trade?

10. Like for like store sales growth in Russia is an opportunity for modern trade Источник: Кантар аналитика, отчеты сетей

11. Race for bigger spend, localization and optimization… Charging a premium for convenience where opportunity exists in Europe Provision of ancillary services in c-stores across Asia Localised offers in 7-11 Japan SKU optimisation Source: Kantar Retail

12. Bigger spend, localization and optimization in Russia – options to consider Categories and brands that build basket Cross category merchandising Capture loyalty of high spending shoppers Source: Kantar Retail analysis

13. C.L.E.V.E.R – Retailers need to address each component Source: Kantar Retail Retailers are facing a massive period of uncertainty & shopper volatility, forcing them to re-evaluate: Convenience (Proximity) Loyalty Experience Value Execution ROI

14. According to Milward Brown Brandz Study in Moscow Only Two Retailers Had Increase in % of Loyal Shoppers 2012 2005 Источник: Милворд Браун Брэндз

15. Loyalty is not a Strategy but an Outcome of Specific Actions Brands that enjoy high loyalty from their shoppers should be used to its competitive advantage Cards work when used to its competitive maximum – data analysis is key As Russian shoppers become more loyal to retail brands, private label will be an effective tool to sustain loyalty

16. C.L.E.V.E.R – Retailers need to address each component Source: Kantar Retail Retailers are facing a massive period of uncertainty & shopper volatility, forcing them to re-evaluate: Convenience (Proximity) Loyalty Experience Value Execution ROI

17. Value is not the same as low prices… Value = Price + Quality + Service “Price is what you pay. Value is what you get” EDLP, promo, fixed price, private label Private label, brands, solutions, experience Assortment, customer service, availability, convenience Warren Buffet Source: Kantar Retail

18. Redefining Value by offering solutions…BUT Sainsbury’s Aldi Kantar Retail analysis

19. Colruyt: Our customers keep us sharp! Jean-Pierre Roelands, commercial director Colruyt Customer said: “You say that you lower your prices immediately when a lower price is reported. I have called you twenty minutes ago and I am in your store now, but the price is still the same”. Before, we adapted our prices only the day after, but our ad said “immediately”. Since then, we have installed printers in every store, so we can adapt our prices immediately all over the country. Source: Kantar Research

20. Price competitiveness is also a engagement tactic… Source: Kantar Retail China - excitement • The traditional trade shopper is usually very price sensitive on the most frequently purchased items • Pricing statements here critical • Price level may not be the key beyond this…shoppers respond to • Modern trade retailer – the goal of this engagement isn’t excitement, but trust France - trust Вы не найдете Франсин бренд на наших полках, потому что мы не принимаем чрезмерного повышения цен на них

21. C.L.E.V.E.R – Retailers need to address each component Source: Kantar Retail Retailers are facing a massive period of uncertainty & shopper volatility, forcing them to re-evaluate: Convenience (Proximity) Loyalty Experience Value Execution ROI

22. How retailers work – What will be the focus for the next two years? Sales X Return (Operating Income) Gross Margin - Expenses ROCE/RONA (Return on Capital Employed) Net Inventory Asset Investment + Fixed Assets Source: Kantar Retail analysis

23. The future OF RETAIL…not as good as it used to be? Retailers will be brands? Smart Self-Cleaning Fridge Orders Food & Suggests Recipes?

24. Tried to think of things that will be true almost everywhere… Market Evolution Dynamics 2014 2018 2012 VOLATILE Planning processes, people, and information systems that allow resources to flow more naturally to the work POLARIZED Marketing and shopper connection becoming increasingly biased towards strategies that truly reflect the specific behaviors and attitudes of individuals CONNECTED Mobile is phase 1 of a new information and communication paradigm – by 2018 touch point should be more “media-neutral” and truly inter-connected Source: Kantar Retail

25. Managing volatility… flexibility with purpose Kantar Retail’s definition “flexibility with purpose” Our mantra: “Purpose without flexibility is irrelevant. Flexibility without purpose is chaos” Paul Polman, Unilever Q2 2012 Earnings Call: “Agility is key, as it is more and more difficult to predict what will happen next in an increasingly volatile external environment. It allows us to respond. It allows us to allocate resources quickly where they are most needed or where they can add most value. As Pier Luigi, our head of our product supply, always says, "Speed is the currency.“”

26. Managing polarization… of everything… MASTER THE GREAT BIG ‘KNOWS’ OF MODERN TRADE GROWTH BEYOND THE USA AND CHINA, GROWTH IS SPREAD ACROSS VERY DIFFERENT MARKETS • Growth is scattered amongst markets that require creative clustering to tackle Source: Kantar Retail analysis

27. Income polarization in fast growth markets is just one example… • Understanding price point, value, shopping dynamics critical High Income Countries Distribution of Wealth Amongst All Income Classes Equal Unequal Low Income Countries *Saudi Arabia information not published recently Sources: IMF, World Bank, UNDP, Eurostat, OECD

28. Market differences can be described by STAGES 1-5, BUT… Kantar Retail Insights Market Evolution Model™ Chain retail < 20% total market share Top 5 share< 30% Chain retail Supermarkets and C&C drive modern trade 1 Exploration Источник: Кантар Ритейл Аналитика Chain retail < 30% total market share Top 5 share <40% Chain retail Minimarkets, soft discounters, hypermarkets drive modern trade 2 Concentration Chain retail <40% total market share Top 5 share < 50% Chain retail Multiformat is critical for growth New formats emerge 3 Penetration Chain retail <50% total market share Top 5 share < 60% Chain retail Growth comes from taking shoppers from other retailers New formats are key for growth 4 Maturation Chain retail >50% total market share Top 5 share >60% Chain retail Growth is limited to personalized approach 5 Post-Modern Source: Kantar Retail

29. We will experience generational “skipping” of market evolution stages in many places Countries are the top 30 population countries = 80% world population Bubble size = # of people under 14 Japan, Germany, Italy = 20MM people Median Age France, UK Russia, South Korea, Spain, Ukraine USA Thailand China Indonesia, Brazil Egypt Iran Bangladesh, Philippines Nigeria India Sudan Pakistan Ethiopia Mexico, Vietnam, Turkey, Myanmar, Colombia (in decreasing order of bubble size) Congo South Africa % of population under 14 Source: Kantar Retail analysis

30. Fewer shoppers will enter stores – Need understanding of relationship between mobile, commerce and logistics Source: Kantar Retail store visits

31. In the Future…. Retailers will be brands and brands will be retailers? In retailers quest for loyalty it is much more than just private label Source: Kantar Retail Services in many markets growing faster than goods

32. BACK TO THE FUTURE: KANTAR RETAIL RETAILER GROWTH FORECAST

33. Based on 1665 retailers forecasted by Kantar by banner, format, channel, market… SALES REVENUES (billions EUR) CAGR 2013-2016 (organic forecast by retailer) Source: Kantar Retail database

34. Growth outside of US and China… Size of the bubble =EUR 20 bill Top 10 share of growth line Source: Kantar retail database

35. Modern Trade in Russia… CAGR 2013-16 Source: Kantar Retail database

36. THE NEW WORLD: Being CLEVER Source: Kantar Retail • Convenience = Satisfaction Per Second • Assortment must be optimized for trip type/neighborhood • Loyalty = Managing “Convenience Leakage” • Understanding shopper missions key to overcoming proximity • Broader relationships with shoppers key • Experience = Delight Per Euro • Fun stores go broke – stores that can close will win • Value = The Changing Language of Price • Execution & ROI/ROCE/RONA – building processes and making decisions that can support doing more than one thing well… 36

37. THANK YOU FOR LISTENING!Vadim Khetsurianivadim.khetsuriani@kantarretail.com Вадим Хецуриани, Кантар Ритейл В течении последних 10 лет Вадим проводит консультационные проекты по разработке стратегии продаж производителей, мерчандайзинга и стратегического планирования для крупных международных сетей как Ашан, Карфор, Лидл, Метро, Х5, Магнит и БИМ. Опыт работы Вадима включает 5 лет работы на американском рынке с поставщиками Вол-Март, два года работы в Великобритании с поставщиками Теско и многочисленные проекты в Польше, России, Ближнем Востоке и Азии связанные с деятельностью Карфор, Метро, 7-11, Кауфланд и др. Vadim Khetsuriani, Kantar Retail Vadim leads consulting practice in CEE as a retail insights and subject matter expert on FMCG selling and merchandising and commercial strategy planning with International retailers such as Auchan, Carrefour, Lidl, Metro C&C in the region as well as the local key accounts of X5 Retail Group, Magnit and BIM.  With 10 years’ experience in Central Eastern Europe as well as in the Middle East and South East Asia Vadim has led many international projects on various aspects of selling to large multinational chains such as Carrefour, 7-11, Metro and Tesco and German discounters. Prior to that Vadim was responsible for Kantar Retail (MVI) retailer financial analysis used for international supplier account planning based in Boston, USA.